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Given America’s huge production in various shale rock formations, the Utica must be feeling performance pressure.

The Utica’s geology stretches across the Appalachian Basin — though several states including Ohio, New York, Pennsylvania, Virginia, and West Virginia — and initially drew comparisons to the prolific Eagle Ford in Texas. Overall, the Utica was thought to have vast hydrocarbon potential and contain a plethora of oil, dry gas, and natural gas liquids.

Heck, even former Chesapeake (CHK) CEO Aubrey McClendon called the Utica “the biggest thing to hit Ohio since the plow.”

Well, it turns out that shale formation might not be as “oily” as first imagined. Initial drilling reports have shown that the Utica is producing less shale oil than expected, and the E&P firms who spent big bucks on acreage in the region aren’t very happy. In fact, some have begun to close down shop and move on to other oil-heavy producing regions.

At first blush, these results seem pretty dour for the Utica’s promise. However, the companies that stay and continue to pump out dry gas — which the ply is apparently full of — will be richly rewarded in the long term.

For investors, there’s still plenty of good times left in the Utica.

Where’s The Black Gold?

Despite the Utica initially being touted as a $500 billion bounty for the energy industry when drilling began in 2011, early evidence shows that those estimates might have been overly optimistic. While the region does cover several states, the bulk of the drilling has come from Ohio, and the state’s latest production numbers — which it only publishes once a year — have come back a bit “gassy” for the liking of some E&P firms.

The Ohio Department of Natural Resources looked at production data from the region’s 87 wells drilled in 2012 and showed an average oil output of just 1,742 barrels per day. That’s far below the analysts’ expectations and the hyped potential of the Utica. Overall, the DNR believes that “oil production will be incidental” in the region.

This lack of shale oil isn’t sitting well some producers.

For example, Chesapeake — who discovered the Utica in 2010 and was initially extremely optimistic about the play’s potential — recently put 94,200 acres up for sale. The embattled energy firm is the largest landholder in the region. Meanwhile, Devon (DVN) has put its entire acreage position up for sale after it didn’t produce anything from its five wells last year. Likewise, Houston-based master limited partnership EV Energy Partners (EVEP) has decided to bail out completely from the Utica.

At the same time that various firms are busy selling acreage in the Utica, buying activity has decreased as well. According to the consultancy firm PricewaterhouseCoopers, The Utica only saw one deal valued at more than $50 million in the fourth quarter of 2012. That compares with seven for the oil rich Bakken and six in Texas’ Eagle Ford.

All in all, the Utica isn’t all gushers and huge production numbers … unless you’re looking for natural gas.

Natural gas production is where the Utica could pay off for several firms and their investors as well. The DNR’s well data shows that the shale play could be a huge natural gas and NGL contributor over the long haul. Throughout 2012, the 87 wells produced a “significant” amount of natural gas totaling 18.837 billion cubic feet, or about 35 million cubic feet per day. Those initial production volumes for natural gas and NGLs certainly give some validation to the U.S. Geological Survey estimations for the formation.

According to assessments from the USGS, the Utica shale contains roughly 38 trillion cubic feet of technically recoverable natural gas. That’s slightly less than half the recoverable resource potential of the Marcellus. (That prolific field — which continues to have resources estimates increased — holds around 84 trillion cubic feet of recoverable gas.) Also like the Marcellus, the Utica has a large wet-gas window, which will prove very profitable for E&P firms focusing on NGL production.

So while the Utica might not be “the biggest thing to hit Ohio since the plow”, it still could be a huge cash cow for firms that are willing to tackle its rich natural-gas-based reserves. Given the recent rise in gas prices, that could come true sooner than later.

Two Picks

While there are plenty of firms that are operating in the Utica — like Hess (HES) or Magnum HunterResources (MHR) — two stand out in particular for their focus on NGL production.

The first is T. Boone Pickens’ favorite pick in Gulfport Energy (GPOR). The firm recently spent about $220 million to add 22,000 acres to its position. That upped its holdings in the wet-gas window of the Utica by 20%. So far, its efforts have paid off as Gulfport has seen some of the best-producing wells in the region. The company’s first 14 wells in Ohio averaged an initial rate of production of 807 barrels of condensate, 7.8 million cubic feet of natural gas and 946 barrels of natural gas liquids per day. That’s pretty impressive production volume from such a small number of initial wells. If production keeps up, investors could be looking at the Range Resources (RRC) of the Utica in Gulfport Energy.

While it couldn’t find a partner for its Utica drilling operations, PDC Energy (PDCE) might actually fare better going at it alone. To that end, the company plans to expand its capital expenditure in the region and — like GPOR — has seen some benefits already. Production in the first quarter increased roughly 5.9% with the composition mix of its initial wells at 49% condensate, 26% NGLs and 25% residue gas. Overall, that’s a pretty positive mixture of natural gas liquids and condensate.

For investors, both PDCE and GPOR represent great long term entry-level plays on the Utica’s wet-gas window and its overall growth.

As of this writing, Aaron Levitt did not hold a position in any of the aforementioned securities.